The year is quickly coming to a close, so do not get all wrapped up in holiday planning and miss out on some end-of-year tax breaks.
Cindy Clampet, Oklahoma State University Cooperative Extension family resource management assistant specialist, there is still time to reduce your 2019 tax obligation before the new year.
“We all like to find tax breaks when we can. One place to start is with charitable contributions,” Clampet said. “You can donate cash and/or property, including household items and clothing. Just be sure to get a receipt.”
Homeowners can get a tax break for prepaying next year’s state and local property taxes and income taxes, as long as you itemize deductions. However, do not prepay taxes if you expect to be subject to the Alternative Minimum Tax because no deduction for taxes is allowed for the AMT.
Clampet also suggests reviewing your investment portfolio and sell investments for optimum tax results this year.
“Consider selling some stocks, bonds and mutual fund shares that have lost value. This will offset your realized capital gains,” she said. “Up to $3,000 of losses in excess of gains can be deducted from ordinary income. Any additional losses can be carried forward to future years.”
Did you have medical expenses in 2019? If you have enough unreimbursed medical expenses, you may be able to deduct them. This year, consumers can deduct only 10 percent of their adjusted gross income. While this tax break may be out of reach for many people, if you had extraordinarily high medical bills this year, you may qualify.
Here is another tip. Maximize your retirement.
“This is a great way to reduce your taxable income while building your next egg,” Clampet said. “Make a contribution to your retirement savings account. Whether you contribute to a 401(k) or an IRA, you can reduce your taxable income and also save for the future. If you’re self employed and contribute to a SEP IRA, you can contribute up to 25 percent of your net self employment income up to $56,000 for this year.”
For those who are supporting parents, grandparents or another loved one, and they qualify as a nonchild dependent, take advantage of the new Other Dependent Credit. This credit is worth up to $500.
If you are the parent or grandparent of a college student, you may be able to lower your 2019 tax bill by prepaying the first quarter tuition bill. And even more good news? You do not need to itemize to claim this tax break.
“The American Opportunity Tax Credit, which you can take for students who are in their first four years of undergraduate study, is worth up to $2,500 for each qualifying student,” Clampet said. “Another tax break is to contribute to a 529 college savings plan. While this won’t reduce your federal tax bill, it could lower your state tax tab.”
Homeowners can claim a federal tax credit for making certain improvements to their homes or installing appliances designed to boost its energy efficiency. Solar, wind, geothermal and fuel cell technology are eligible.
“It’s always a good idea to check with your accountant or tax adviser for other tax credits for which you could be eligible,” Clampet said. “You could end up saving a chunk of change when it’s time to file your taxes next spring.”